Direct Response Pricing and Markup

Author

Message

MarcZev

Location : Chatsworth, California

Subject: Direct Response Pricing and Markup Mon Jun 22, 2009 3:32 pm

I am preparing for meetings with possible investors. Some of which will be infomercial types. While I have experience in the more traditional retail world. I don't know what to expect from the direct response folks when it comes to pricing and markup.

Traditionally, the negotiations starts at an assumed markup of 400% from the manufacturing cost. Where does negotiation start with DR people?

1) A DRTV company buys a product at a wholesale price from you. DRTV typically needs 5-6 times mark up. Usually a cost of $.50 to $1.75 to achieve a $14.95 - $19.95 retail. In this situation, you will need to ensure you can supply approx 1,000,000,000 units a month! YES, you heard right.

2) A DRTV company takes on the item under a licensing deal, they manufacture and distribute into retail, and the inventor collects a negotiated royalty (typically between 3-5%) of the retail price point.

If I understand it correctly, you are saying that the two ways DRTV does business is either they buy gazillions of units per month at the wholesale price, or they license the product and pay a royalty.

I assume that to get the 5-6 times markup the DRTV wants they will want to push down the wholesale cost as far down as they can. On the other hand if they license the product then I would benefit from the large markup.